Why Institutional Capital Is Still Sitting Out the Digital Securities Boom

For years, tokenization has been pitched as the next big leap in financial markets, promising faster settlements, greater transparency, and access to fractional ownership. And while the technology certainly has real benefits to it, institutional acceptance of it is still on the slow side.

A recent CoinGecko report pointed out that tokenized stocks had reached just $11.4 million in market cap in 2025 — even after achieving 300% growth throughout the last year. The figure may look impressive, but compared to traditional capital markets, it’s practically negligible.

So the question then is: why is real money not coming in? It’s not because there’s a lack of curiosity — many institutional players are keeping an eye on digital securities, and some even take active part in various pilot projects. But we are still far from mainstream adoption. And to get there, we need to take a good look at the real reasons behind the hesitation.

Let’s try to unpack them in this article.

What Are the Big Frictions Keeping Institutions Away?

The way I see it, there are at least three consistent points of concern that institutional investors are likely to bring up when talking about digital securities.

The very first point is their legal status. Traditional financial assets have had a long time to establish themselves in the minds of investors and regulators alike. And the same is true for the rules governing them. 

But for digital securities, regulatory standing at present time is still very murky. What jurisdiction governs the asset? How enforceable are investor rights? What happens in the event of insolvency? Until regulators provide clearer guidance — and digital securities come with robust legal backing — most institutions will prefer to steer clear of them rather than risk getting in trouble over non-compliance.

Another big issue is limited liquidity. The promise of 24/7 trading and instant settlement doesn’t mean much if you can’t find a counterparty to work with. Most digital securities today suffer from painfully thin markets. Without real volume, pricing remains inefficient, spreads are wide, and exits are uncertain. Institutions can’t justify holding assets that might take months to sell — especially in such volatile market conditions that we’re seeing globally now.

And even if the previous two problems were to be tolerated, the lack of standardized rights would still leave many investors wary. Buying a digital security should mean knowing exactly what rights you’re purchasing — dividends, voting, redemption terms, etc. Too often, these are vague or embedded in smart contracts that don’t translate well to legal language. Until the industry adopts clear, standardized frameworks, institutional buyers will see these products as unpredictable.

Functionality Matters Before Digitization

Tokenization has been promoted as a shiny innovation, but the truth is: going digital doesn’t fix bad product design. Yes, tokenization can improve performance, but if the underlying fundamentals are poor, none of that matters.

If an instrument has unclear cash flow rights and exit mechanisms, investors are unlikely to commit capital. Institutions, in particular, require a precise understanding of how, when, and under what conditions returns are paid. Ambiguity around these factors undermines the utility of tokenization entirely. A digital wrapper on a vague deal doesn’t change that it’s still a vague deal. No one wants to hold an asset they can’t reliably exit.

At the same time, digital security still needs to be valued using traditional financial metrics. If the methodology behind its valuation is inconsistent or overly reliant on speculative assumptions, no amount of blockchain efficiency will make it investable. Institutions expect transparent, verifiable models and auditability. If the valuation isn’t trustworthy, tokenization becomes a distraction from a deeper problem, rather than a solution.

Too many digital securities today are being rushed to market without the kind of rigorous structuring that institutions expect from a serious financial product. If institutional investors are to trust these products, we need to stop focusing solely on the blockchain rails and start building better, more transparent financial instruments from the ground up.

What Does It Take to Build Real Trust?

Now, remember: institutions aren’t unreasonable. They are not asking for magical solutions — they simply want the quality of digital assets to be comparable with what they already get with traditional asset classes.

So what can be done to achieve that?

It starts with establishing more predictable governance models. Institutional investors need to understand who’s responsible for what — not just what’s written in the code, but how it actually works in practice. Smart contracts and automation are useful, but there must also be human oversight and fallback mechanisms. Clear accountability is critical here.

Compliance is also a key factor. Platforms dealing with digital assets must meet strict KYC and AML requirements. Institutions won’t engage with systems that allow anonymity or bypass regulatory checks — and, realistically, they shouldn’t. Anonymity may be acceptable in crypto-native spaces, but that’s not the way to do things here.

The digital asset space also needs to bring in credible actors. Investors are far more comfortable operating in environments where they can see licensed operators involved — names they can recognize and trust. Knowing that there are regulated, accountable counterparties on the other end of a transaction makes it much easier to justify participation.

Finally, for digital securities to really take hold, we need functioning secondary markets. Issuing a token is only part of the journey. True adoption comes when digital securities can be part of a proper ecosystem with real liquidity and market depth — actively traded, priced efficiently, and used in portfolio strategies.

Focus on Integration Over Disruption

Institutional investors, by and large, don’t want to overthrow existing systems — they want to build upon them. To modernize their operations without giving up regulatory comfort or investor protections they’re used to.

In that context, the real path forward for digital assets becomes assimilation and finding a middle ground. They will gain traction naturally when they can slot easily into existing operational flows: custodians, fund administrators, auditors, compliance teams, and risk frameworks.

The more these instruments become compatible with the workflows that institutions already trust, the easier it becomes to start using them. Institutions are rightfully cautious, and to achieve their participation, digital assets need to meet them where they are. Build solutions that respect their standards.